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Home»GSDRC Publications»Improving the Investment Climate in Fragile and Conflict Affected States

Improving the Investment Climate in Fragile and Conflict Affected States

Helpdesk Report
  • Oliver Walton
October 2010

Question

Which interventions have been most successful in improving the investment climate in fragile and conflcit affected states (FCAS)? Provide examples of good and bad donor practice in supporting these interventions. Provide a particular focus on Special Economic Zones.

Summary

There is little consensus about which interventions have been most successful in improving the investment climate (IC) in fragile and conflict-affected states (FCAS). This is partly because their primary aim – reducing risks to investors – is difficult to measure. It also relates to the considerable variation in the institutional and macroeconomic of FCAS states. As a World Bank study argues, there is ‘no single set of priorities within the broad set of characteristics that determine the investment climate – the priority issues are country-specific’ (OED 2004, vi). A range of initiatives (including efforts to improve infrastructure, rationalise business regulations and reform land and property rights) have been associated with increased levels of investment in a range of FCAS contexts.

There is growing agreement that IC reforms (and particularly more fundamental ones) should be tackled in the immediate post-conflict moment if possible. There is also widespread recognition that supporting the IC in FCAS is a long-term project where success is not guaranteed. The literature emphasises the need to focus on building coalitions of support for the reform process; base interventions on detailed market and political economy analysis; and ensure reform is accompanied by widespread stakeholder consultation.

While Special Economic Zones (SEZs) have fostered growth in many cases, there are many examples of failed zones. There have been concerns about the potential for SEZs to exacerbate social inequalities and exacerbate land conflicts. Donor experience suggests that key determinants of success include location and the quality of surrounding infrastructure.

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Enquirer:

  • DFID Growth Team

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